October 8, 2003
DAR OPINION NO. 20-03
Mr. Daniel R. Arcenas
President
Rural Bankers Association of the Philippines
RBAP Bldg., A. Soriano Ave., cor. Arzobispo St.
Intramuros, Manila
Dear Mr. Arcenas:
This refers to your letter dated 12 September 2003, requesting for clarification/opinion regarding the five (5) hectares retention limit on the foreclosed properties of rural banks. HDAaIS
You stated that it is your belief that the intention of the five-hectare retention limit is for individual or corporate land owners; that in the case of a rural bank, it is a landowner not by virtue of land purchases or inheritance, but through foreclosures; that since rural banks are only landowners because of foreclosures as a result of loan transactions with many individuals/corporations, the rural banks should not be governed by the five-hectare retention limit; and that because of the retention limit, many rural banks are limiting, if not shying away from agricultural loans involving larger tracts of land (beyond 1,000 square meters).
Pertinent to the issue are the following provisions of law and guidelines:
1. SECTION 71, R.A. No. 6657 (Comprehensive Agrarian Reform Law)
"Section 71. Bank Mortgages. — Banks and other financial institutions allowed by law to hold mortgage rights or security interests in agricultural lands to secure loans and other obligations of borrowers, may acquire title to these mortgaged properties, regardless of area, subject to existing laws on compulsory transfer of foreclosed assets and acquisition as prescribed under Section 16 of this Act." (underscoring and emphasis supplied)
2. SECTION 1, DAR Administrative Order No. 1, Series of 2000 (Revised Rules and Regulations of Agricultural Lands Subject of Mortgage or Foreclosure)
"Section 1. Rationale. — Section 25 of Republic Act No. 337, otherwise known as "The General Banking Act", provides that acquired assets and mortgaged properties foreclosed by banks shall be disposed of within a period of five (5) years after foreclosure." (emphasis supplied)
3. Penultimate Paragraph of DAR Memorandum Circular No. 05, Series of 1996 (Guidelines Clarifying Sections 3 and 6 of R.A. No. 7881 Relative to
Applications for Commercial Farms Deferment and the Turn-over to DAR of Foreclosed Assets of Government Financial Institutions, Respectively)
"As regards private banks, Section 71 of R.A. No. 6657 provides that said foreclosed assets are subject to existing laws on their compulsory transfer (that is, under the General Banking Act) and acquisition under Section 16 of said Act. This means that private banks may sell to third parties their foreclosed assets but still subject to acquisition under Section 16 of R.A. No. 6657." (emphasis supplied)
4. 4th Paragraph of DAR Opinion No. 95, Series of 1996
". . . . Banks cannot exercise the right of retention over their foreclosed agricultural properties. Section 71 of R.A. No. 6657 mandates that foreclosed assets of private banks are subject to existing laws on compulsory transfer (that is under the General Banking Act) and acquisition under Section 16 of said Act (see attached M.C. No. 5, Series of 1995)." (emphasis supplied)
GIVEN ALL THE ABOVE, it is explicit that banks may acquire title to mortgaged agricultural properties regardless of area (that is, even more than the 5-hectare retention limit) pursuant to Section 71 of R.A. No. 6657. However, banks cannot exercise the right of retention over said foreclosed agricultural properties since they are subject to the aforequoted provisions of existing laws and guidelines on their eventual compulsory transfer and acquisition under the Comprehensive Agrarian Reform Program (CARP)
For your further information and reference, we are furnishing you a copy of DAR Administrative Order No. 01, Series of 2000, DAR Memorandum Circular No. 05, Series of 1996 and DAR Opinion No. 95, Series of 1996.
We hope to have clarified the matter.
Very truly yours,
(SGD.) RICARDO S. ARLANZA
Undersecretary for Policy, Planning and Legal Affairs Office